Answered: 2. After tax, Dave will choose to work…

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Economics

2. After tax, Dave will choose to work hours. 3. The tax rate on income is %. and Dave will pay $ in income tax.

Principles of Microeconomics (MindTap Course List)

8th Edition

ISBN:9781305971493

Author:N. Gregory Mankiw

Publisher:N. Gregory Mankiw

Chapter6: Supply, Demand And Government Policies

Section: Chapter Questions

Problem 4PA

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Question

In the following diagram, Dave's budge line and optimal choice is presented before and after the
government imposes an income tax. Use the information in the diagram to solve the following
questions.
1. Before tax, Dave's is paid a wage of $
per hour.
2. After tax, Dave will choose to work
hours.
3. The tax rate on income is
%. and Dave will
раy
$
in income tax.
4. On the graph, precisely identify the equivalent variation of the total burden of the tax.
5. On the graph, precisely identify the equivalent variation of the excess burden of the tax.
$
360
320
280
240
200
160
120
80
Uo
40
-U1
2 4
6 8
10
12
14
16
18
20
22
24 Hours of Leisure

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